EUR/USD Sliding in Range as Greek Deal Still Awaited

Euro dollar is sliding in range, still on high ground and beginning to form a downtrend channel. Reports about Greece now focus on the Official Sector Involvement – a haircut for the ECB. Ben Bernanke can weaken the dollar with an official testimony later on, as tension mounts towards the Non-Farm Payrolls.

Here’s an update on technicals, fundamentals and what’s going on in the markets.

ECB Pressured to take a haircut: This seems to be the sticking point, after the Private Sector Involvement has been mostly agreed upon. More and more speakers call for the ECB to take a hit on Greek bonds, despite the “no bailout” clause in the EU Treaty. The pressure comes from the banks (naturally) and also from the IMF. Note that ECB president Draghi didn’t categorically reject this. If Greece defaults, the ECB will have a 100% involuntary haircut.

Greece still stuck – troika demands more: Negotiations are stuck between Greece and the troika. The idea to take over Greece’s sovereign budget powers is off the table, but demands for cutting the minimum wage and other demands are putting a lot of pressure on the Greek government. Also the demand for a commitment to move forward with austerity regardless to election results is extreme. It seems that the demands are meant to be rejected and talks are meant to collapse and blame Greece. It’s important to note that German Chancellor Angela Merkel has doubts if Greece can avoid a default.

Portugal deteriorates: Portuguese yields continue rising together with CDS, and point to a high chance of default. The chances of a default there are rising, especially if a PSI deal is signed in Greece and especially if also the ECB takes a hit.

Bernanke to shed more light: The FOMC Statement contained one significant change: the low rates are now likely to remain until late 2014, instead of mid 2013 stated earlier. Together with a hint by Bernanke that QE3 is still open, the dollar fell and the pressure on the greenback will remain in weeks to come.

OK Numbers from the US: The manufacturing PMI was higher, with a good score in the employment component. The bigger sector, services, will release its numbers only after the NFP. ADP’s private sector report was a bit below expectations, but still pointed to growth in jobs. Today’s jobless claims number will provide a hit towards the unemployment rate.